Who Is Responsible for Paying HOA Dues for a Short Sale Property?

Getting behind in your HOA dues may cripple a sale.

Homeowners who are behind in their mortgage payments are encouraged to continue paying their homeowners’ association (HOA) dues. If they want to succeed in a short sale, and a balance due is reflected in the estopple letter issued by the HOA before closing, the entire transaction may fall apart. Who pays these dues varies according to each lender’s underwriting guidelines. The HOA can file a lien against the property and owner. It can foreclose on the property. Outstanding dues pose a problem to the lender, the seller, the buyer and the buyer’s lender. Negotiation is the only course of action in this situation.

Seller and the HOA

Homeowners’ associations have become aggressive when chasing past due fees. The first sign of a short sale occurring on a property puts them into action and a lien is filed. If the debt accrues to an unreasonable amount, the HOA may foreclose even though it is not the primary lien holder. In California, a redemption period of 90 days follows an HOA foreclosure, allowing the original owner to short sale the property or pay the outstanding fees. The best approach when trying to close a short-sale is to negotiate with the HOA for a reduced-fee payment. In California, an HOA lien becomes a personal debt that is carried over to the seller, not the lender.

Original Lender

Most lenders on the seller’s side won’t pay HOA dues when a property is in a short sale position. Asset managers can be firm on this point and some will watch as a house goes into foreclosure because of the seller’s inability to pay outstanding HOA fees. Negotiate with the lender from a position of strength, agreeing to pay a portion of the outstanding debt if it will contribute.

Buyer

Buyers in a short sale transaction are aware that the process is complicated but that they’re getting value for money. Negotiate to split the difference of the outstanding dues. If the buyer wants the house badly enough, he’ll consider your proposition.

Title

Mortgage lenders won’t fund the purchase unless the title to a property is “free and clear” of liens. In many states, title cannot pass until it is devoid of liens. In California, a “Master Lien” state, title can transfer with outstanding HOA dues attached; however, the delinquency then follows the seller for collection. This happens in all cash sales. Negotiating with an anxious buyer and the lender helps resolve this issue.

About the Author

Jann Seal is published in magazines throughout the country and is noted for her design and decor articles and celebrity *in-home* interviews. An English degree from the University of Maryland and extensive travels and relocations to other countries have added to her decorating insight.